On January $1,20$X$1,$ Capri Instruments purchased $70\%$ of Brunswick Investments' common stock for $$350,000.$ Brunswick had $$100,000$ of $10\%$ cumulative preferred stock outstanding at par as of the date of acquisition and preferred dividends in arrears amounted to $$10,000.$ Brunswick had not declared any dividends for $20$X$1.$ Which of the following is true of the accounting for outstanding preferred dividends in the consolidation process at the point of the business combination?

Multiple choice question.

Unpaid preferred dividends for $$10,000$ must be added to Capri's retained earnings for $20$X$1.$

Unpaid preferred dividends for $$10,000$ must be deducted from Capri's retained earnings for $20$X$1.$

Unpaid preferred dividends for $$10,000$ must be added to Brunswick's retained earnings for $20$X$1.$

Unpaid preferred dividends of $$10,000$ must be allocated to preferred shareholder interest from Brunswick's retained earnings.